Discussion:SIngle to MFS status that causes big tax due
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Discussion Forum Index --> Tax Questions --> SIngle to MFS status that causes big tax due
| 3 May 2007 | |
| I have a client with following facts and would like to know any relief which might reduce her tax burden on the returns
- lived and worked overseas with annual overseas employment income of over US$200K, no other major investment income/deductions - have been claming Section 911 - no US workdays - have been claiming Hong Kong taxes paid as FTC (low tax rate of just 16% there) - single filer in the past so she had been paying just $1,000+ of taxes on her 1040s; the 06 tax due jumped up to over$10K as she starts using MFS status and that the law change about section 911 became effective from 06 - married in 2006 and her husband is a NRA and high income earner (so probably MFJ would not be an option) - no kids yet and her parents earn much more than her so head of household status would also not be an option Provided the above, what could she possibly do to reduce taxes on the return? | |
| 3 May 2007 | |
| The increase over 2005 is partly due to the change in the method of taxing people who have 911 excluded income. The HK rate just isn't high enough to offset the increase in tax under the new method. Her tax bracket has tripled by going from single to MFS in the same year that the method changed.
Make sure she's claiming the Foreign Housing Exclusion (but don't forget that mortgage interest goes on Sch A). Make sure she's claiming Sch A or standard deduction, whichever is higher. Run a diagnostic test to see if NOT claiming the Foreign Earned Income Exclusion or the Foreign Housing Exclusion (or any combination thereof) saves more than claiming. Does she spend any time in the US? If so, she may have a US cell phone - take your telephone tax credit. Do what you would do with a regular client to drop the income - scrounge for deductions. You didn't have to before, but you will from now on. | |
